India's current account deficit (CAD) rose to $11.5 billion, or 1.1% of GDP, during the October-December 2024 quarter, up from $10.4 billion in the same quarter the previous year.

This increase in CAD was primarily driven by a significant rise in the merchandise trade deficit, which reached $79.2 billion in Q3 of FY25, compared to $71.6 billion in Q3 of FY24.

For the first nine months of the fiscal year, from April to December 2024, the CAD widened to $37.0 billion, or 1.3% of GDP, up from $30.6 billion, reflecting a growing merchandise trade deficit.

Despite the widening CAD, net invisible receipts increased during the same period, bolstered by services and transfers, although net foreign direct investment (FDI) inflow dropped to $1.6 billion from $7.8 billion the previous year.

Net inflows from non-resident Indian (NRI) deposits decreased to $3.1 billion, down from $3.9 billion a year ago, while foreign portfolio investment experienced net outflows of $11.4 billion in Q3 FY25, contrasting sharply with an inflow of $12 billion in the previous year.

Additionally, foreign exchange reserves saw a depletion of $13.8 billion on a balance of payments basis from April to December 2024.

On a positive note, net inflows from external commercial borrowings (ECBs) surged to $4.3 billion in Q3 FY25, a significant turnaround from an outflow of $2.7 billion during the same period the previous year.

Personal transfer receipts, mainly from remittances, grew to $35.1 billion in Q3 FY25, up from $30.6 billion in Q3 FY24, indicating strong support from the Indian diaspora.

Net services receipts also increased, reaching $51.2 billion in Q3 FY25, compared to $45.0 billion in the same quarter the previous year, driven by growth in business and computer services.

However, payments on the primary income account rose to $16.7 billion in Q3 FY25, up from $13.1 billion a year earlier, reflecting higher investment income.

Notably, the CAD showed a sequential decrease from $16.7 billion (1.8% of GDP) in the preceding quarter, indicating improved performance relative to the previous quarter.

Aditi Nayar, chief economist at ICRA, commented that while the CAD widened, it was lower than expected, attributing the trend to the increased merchandise trade deficit.